Pyrosequencing AB Reports Third Quarter Results for Period Ended September 30, 2001

Pyrosequencing AB Reports Third Quarter Results for Period Ended September 30, 2001 - Company makes significant advances in Molecular Diagnostics - Uppsala, Sweden, October 24, 2001, Pyrosequencing AB (Stockholm: PYRO A) today reported third quarter results for the period ended September 30, 2001. Erik Walldén, President and CEO of Pyrosequencing, commenting on the quarter said, "We are pleased with our progress this quarter closing further sales of products based on our Pyrosequencingtm technology and achieving major advances in our Molecular Diagnostics Business. We are maintaining our market leadership in providing the most widely used technology for rapid applied genetic analysis. In addition to the more than 120 PSQtm96 Systems sold worldwide, we have sold several of our high-throughput systems. Our technology is also gaining strong acceptance for molecular diagnostics applications. In just a few months, we have established five research collaborations with leading medical institutions to develop diagnostic tests and related intellectual property based on Pyrosequencingtm. We expect to announce several more of these partnerships in the coming months. Steps to enhance protection for our core technology platform resulted in two new U.S. patents issued during the quarter. As we look toward the fourth quarter, we remain confident that Pyrosequencing will continue to lead the market in supplying tools for applied genetic analysis. We are equally convinced that Pyrosequencing offers the molecular diagnostics marketplace a better, easier-to-use technology for developing accurate, more rapid tests." Third quarter 2001 highlights include: - Recording 17 orders as revenue; 12 are new orders for the PSQ 96 System; noting a backlog of 4 orders at September 30, 2001 - Installing two high-throughput 384-well systems at Stanford Genome Technology Center and Oxagen, the latter of which is up and running - Establishing three new research collaborations for the development of rapid, molecular diagnostic tests and related intellectual property - Completing worldwide sales network for applied genomics market with new distributors in Asia Pacific - Announcing two U.S. patents that were issued covering Pyrosequencing technology Summary financial group data (in millions except share data) Nine months ended Sept. Three months ended Sept. 30 30 2001 2001 2000 2001 2001 2000 USD** SEK SEK USD** SEK SEK 26.5 Net sales 6.6 70.7 20.4 2.5 10.9 Gross profit 4.7 50.1 16.5 1.6 17.6 9.2 Gross margin, % 70.8 70.8 80.5 66.2 66.2 86.3 Operating result (11.0) (117.7) (73.9) (3.2) (34.2) (21.1) Results after (8.5) (90.6) (59.6) (2.6) (28.2) (8.1) financial items Net results (7.8) (83.7) (59.6) (2.4) (25.4) (8.1) Net loss per share (0.23) (2.41) (2.37) (0.07) (0.73) (0.32) Net loss per share after (0.19) (2.05) (1.89) (0.06) (0.62) (0.26) full dilution 2001 2000 Weighted average shares outstanding 34,769,200 25,187,400 Weighted average shares outstanding after full dilution 40,875,400 31,590,400 Common shares outstanding, as of Sept 30 34,770,100 34,767,400 As of Sept. 30, As of Dec. 31, 2000 2001 USD** SEK USD** SEK Cash and short-term 7.4 79.0 36.4 389.6 investments* Securities held as long-term financial assets* 57.6 615.9 42.8 457.1 Other assets 18.1 192.7 10.0 106.8 Total assets 83.1 887.6 89.2 953.5 Shareholders equity 78.5 838.9 84.4 902.4 Operating liabilities 4.6 48.7 4.8 51.1 Total liabilities and 83.1 887.6 89.2 953.5 shareholders equity *Total cash and marketable securities = $65.0 million **Convenience translation rate: SEK 10.6871= USD Financial Position For the three months ended September 30, 2001, the Company reported revenues of $2.5 million compared to $1.0 million for the comparable period in 2000. The increase in revenue reflects sales of the PSQ 96 System, high-throughput PTPtm systems and consumables. Consumable sales as a percentage of revenue rose to 25.7 percent compared to 25.2 percent for the previous quarter. The Company recorded sales of 17 instruments in the third quarter of 2001 compared to 11 instruments in the same period last year, and reported a backlog of four orders as of the end of the quarter. Pyrosequencing also received two new orders for its high- throughput application, PTPtm during the third quarter. In contrast to PSQ 96 System sales, PTP installations typically extend over multiple accounting periods. As a result, revenue related to PTP sales is recorded using the percentage of completion method. Interest in SNP and sequence analysis technologies and specifically in Pyrosequencing's products remains robust. Economic uncertainty has been exacerbated by recent events, and it is clear that some capital purchasing decisions are being deferred across the Life Sciences industry. These deferrals have directly impacted orders in the third quarter, especially in the United States. However it should be noted that some of these delayed purchasing decisions have already been reversed and orders received. Due to the underlying importance of genotypic information across a wide range of scientific endeavors and the proven advantages of the Pyrosequencing approach, the Company remains confident of its long-term future and growth prospects. Gross margins for the third quarter of 2001 amounted to 66.2 percent, a decrease from the margins of 75.0 percent for the second quarter of the year. The decrease in margins reflects the sale of robotics from inventory at the Company's cost. This decision was made to facilitate the rapid installation of a PTP. This was a one-time event. In the future, Pyrosequencing does not expect to sell third-party robotics as part of PTP installations. Operating expenses were $4.8 million for the third quarter of 2001 and $15.7 million for the nine months ending September 30, 2001 compared to $2.8 million and $8.5 million, respectively, in the corresponding periods of 2000. The increases in operating expenses are mainly attributed to significant expenditures made to develop the Company's global sales force and marketing network as well as research and development spending and investments associated with the Company's Molecular Diagnostics Business Unit. The Company expects to realize long- term benefits in future operating results from these current year's spending initiatives. Operating expenses decreased to $4.8 million in the third quarter from $5.9 million in the second quarter of 2001. The reduction in expenses is the result of favorable currency translations and lower administrative and marketing expenses. Pyrosequencing reported a net loss of $2.4 million, or $0.07 per share, for the third quarter of 2001 and a net loss of $7.8 million (0.23 per share) for the nine months ended September 30, 2001. Those results compare to $0.8 million ($0.03 per share), and $5.6 million (0.22 per share), respectively, for the comparable periods of 2000. The previously mentioned increase in operating expenses during 2001 has been the primary cause of the increased net losses during 2001. The increased operating expenses have been partially offset by increased earnings on securities held by the Company. At September 30, 2001, cash, cash equivalents and investments in high- grade debt securities, including investments with maturity dates exceeding 12 months, totaled $65.0 million as compared to $79.2 million at December 31, 2000. Pyrosequencing has no debt financing. Marketing and Sales Pyrosequencing began installing its high-throughput SNP analysis systems (PTP) at two new high-profile customers this quarter. The Stanford Genome Technology Center, directed by the well-respected geneticist Ron Davis, is one of the National Institutes of Health (NIH) genome centers. This quarter, the Genome Center added to its Pyrosequencing genotyping capacity by purchasing a 384-well, high-throughput PTPtm system to accelerate genetic research. U.K.-based genomics company Oxagen Ltd. also decided to increase genotyping capabilities and its commitment to Pyrosequencing technology. Convinced of the power of Pyrosequencing's PSQ 96 system, Oxagen bought a customized PTP system to meet its higher volume genotyping needs. Both of these PTP orders came from existing PSQ 96 customers, demonstrating how users are quickly convinced of the technology's ability to deliver reliable results through a cost- effective, scalable and easy-to-use platform. PTP, the Company's high-throughput SNP (Single Nucleotide Polymorphism) analysis system, is based on 384-well microplates and the same patented Pyrosequencing technology. In addition to the software and reagent kits, PTP also includes sample preparation robotics provided by a third party, for a fully automated, cost-efficient operation that can score up to 100,000 SNPs per day. Pyrosequencing has sold more than 120 systems for applied genetic analysis to date and continues to lead the moderate-throughput market segment. The Wellcome Trust Centre for Molecular Mechanisms in Disease, Cambridge, UK; Children's Hospital, Pittsburgh and the University of Texas, Houston are among those who purchased Pyrosequencing systems during the third quarter. In addition, a new director for European sales, Mats Bergstrom, joined the Pyrosequencing team from Applied Biosystems (part of Applera/Perkin-Elmer). He has also held senior sales positions with Pharmacia LKB Biotechnology AB and Beckman Instruments AB. In completing the worldwide sales and support network, the Company established new distributorships for Asia Pacific to include the territories of Australia, New Zealand, Singapore and Malaysia, Korea, Taiwan, China and Hong Kong. Pyrosequencing has an existing distribution arrangement in Japan with Sumitomo and maintains its own sales force in the major markets of the United States and Europe. "We are continually increasing our sales capabilities and this quarter we not only added a strong, very experienced sales director to drive European sales but also improved our ability to penetrate diverse marketplaces through several new distribution agreements," stated Mårten Winge, Vice President, World Wide Marketing, Sales and Support for Pyrosequencing. "These efforts will serve us well in the fourth quarter when sales volumes have historically been much higher." Early feedback received from customers on the Company's new Primer Design Software continues to be very positive. Users are pleased to be able to optimize their SNP analyses with Pyrosequencing's convenient and secure Web-based access or by using this design tool in-house. Many customers also report that the software makes it easier and more efficient to develop their own assays, significantly reducing the time it takes to complete experiments and obtain results. Research and Development Applications of Pyrosequencing technology continue to increase. The Company's research efforts are focused on expanding the ability of a variety of customers to use Pyrosequencing's unique chemistries. Researchers are evaluating technologies that would allow for the use of these chemistries on microfluidics platforms and new chemistries to enable additional methods of sequencing by synthesis. The research group is also evaluating improvements to standard sample amplification technologies with the goal of enhancing the utility of our products for a wider assortment of applications. Significant efforts are being devoted to developing software tools to enhance the performance of the Company's sequencing technology. The objective is to develop a single software interface that can be used with any Pyrosequencing platform. New modules of Pyrosequencing software will assist users in designing experiments and allow for rapid and accurate interpretation of data. In the next several months the group expects to provide selected beta site customers with this enhanced operating system. During the quarter, we reported that two U.S. patents were issued covering methods for DNA sequencing based on the real-time detection of pyrophosphate and improvements in the chemistry of Pyrosequencing's novel genetic analysis technology. These patents complement and enhance the Company's existing broad coverage for sequencing by synthesis, an automated method for determining the base sequence of either DNA or RNA. Molecular Diagnostics The third quarter marked a strong period of growth for Pyrosequencing's Molecular Diagnostics Business Unit. In addition to an agreement with The Children's Hospital of Philadelphia for hearing loss announced last quarter, the Company established three new research collaborations with leading institutions in the third quarter. The goal of these partnerships is to develop innovative and more rapid molecular diagnostics tests based on Pyrosequencing technology. New collaborators include the University of Geneva for Down Syndrome, Uppsala University for bacterial identification and resistance, and the Scottish Meningococcus and Pneumoccocus Reference Lab for the characterization of infectious bacterium. In addition to genetic disease testing, recent events have highlighted the growing need for new, rapid DNA-based methods for the identification and characterization of infectious bacteria such as soil bacterium B. anthracis (Anthrax). Assays have been developed and feasibility studies have been completed within the Company's labs. This has also been a focus of the Company's agreement with Professor Lars Engstrand at Uppsala University. Late-stage discussions with several other well- respected clinicians and organizations are underway where Pyrosequencing technology will be used to develop molecular diagnostics tests and related intellectual property targeting infectious disease, genetic disorders and pharmacogenomics. We expect that these discussions will yield similar collaborations in the fourth quarter and beyond. "Pyrosequencing technology's accuracy, robustness, and ease of use makes it a very attractive platform for developing diagnostic tests," commented Jerry Williamson, VP, Molecular Diagnostics Business Unit Head at Pyrosequencing. "These collaborations are evidence of the high degree of interest the technology has already generated among top clinicians who are working to develop better diagnostics. The research agreements provide an excellent way for us to design new technology applications for the routine clinical diagnostics setting, as well as an another avenue for growing our intellectual property portfolio." Human Resources At September 30, 2001, the total number of employees in the Pyrosequencing group was 134 compared to 77 at September 30, 2000, and 86 at December 31, 2000. This report has not been subject to examination by the Company's auditors. About Pyrosequencing AB Pyrosequencing AB develops, manufactures and sells complete solutions for rapid applied genetic analysis based on its proprietary Pyrosequencingtm technology, a simple-to-use DNA sequencing technique. Pyrosequencing leads the global market in Applied Genomics with over 120 systems sold to major pharmaceutical and biotech companies and prestigious research institutions worldwide. Pyrosequencingtm is broadly applicable for the analysis of single nucleotide polymorphisms (SNPs) and for the identification and quantification of short DNA sequences used in bacterial and viral typing. The Company's Molecular Diagnostics Business is establishing collaborations with industry leaders to identify new product opportunities in disease diagnosis, clinical prognosis and pharmacogenomics. The Company's products include the bench-top PSQtm96 System and a high- throughput PTPtm system which utilize proprietary software and reagent kits. Among Pyrosequencing's customers are AstraZeneca, GlaxoSmithKline, Merck, the NIH, the Harvard Center for Cancer Prevention, the Karolinska Institute, Biogen, Oxagen, Ltd., and DuPont Agriculture. The Company's Web address is www.pyrosequencing.com. Certain statements in this press release are forward-looking. These may be identified by the use of forward-looking words or phrases such as "believe," "expect," and "anticipate," among others. These forward- looking statements are based on Pyrosequencing's current expectations. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. In order to comply with the terms of the safe harbor, Pyrosequencing notes that a variety of factors could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in such forward- looking statements. Such uncertainties and risks include, but are not limited to, risks associated with management of growth and international operations (including the effects of currency fluctuations), variability of operating results, the commercial development of the DNA sequencing and genomics market, nucleic acid-based molecular diagnostics market, and genetic vaccination and gene therapy markets, competition, rapid or unexpected changes in technologies, fluctuations in demand for Pyrosequencing's products (including seasonal fluctuations), difficulties in successfully adapting the Company's products to integrated solutions and producing such products, and the Company's ability to identify and develop new products and to differentiate its products from competitors. Pyrosequencing AB Erik Walldén Theresa McNeely, Sr. Director President and CEO Investor/Public Relations +46 70 326 98 70 +1 877 797 6767 erik.wallden@pyrosequenc theresa.mcneely@pyrosequencin ing.com g.com ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/24/20011024BIT01020/bit0001.doc The full report http://www.waymaker.net/bitonline/2001/10/24/20011024BIT01020/bit0001.pdf The full report